Draghi Reiterates Forward Guidance

The most important take away from Draghi's initial remarks is that he has reiterated the forward guidance that rates will remain this low or lower for an extended period. There were some suspicions, given clear signs of an economic recovery, judging from the PMI data, which Draghi did acknowledge, that the forward guidance could have been tempered. Draghi also revealed that the new staff forecasts envision slightly better economic performance than seen in June. The region's economy is expected to contract 0.4% this year rather than 0.6%. Next year's growth is expected to be 1.0% vs 1.1% seen previously. Draghi sees risks to the downside. Inflation is low and expectations anchored. The staff see CPI this year at 1.5% vs 1.4% seen in June. Next year's forecast is unchanged at 1.3%. The risks, he says, on inflation, are balanced. He sees the upside risks coming from administrative prices and indirect taxes. Weaker growth poses downside risks. Euribor futures have firmed and the curve has flattened a bit in the initial response to Draghi's prepared remarks and the euro has come off about half a cent. Look for initial support near yesterday's low just below $1.3160, but Tuesday's low near $1.3140 may be more important.